Federal Reserve Chair Jerome Powell said that additional interest-rate increases will be needed to cool inflation and borrowing costs may need to peak higher than previously expected, if the strong jobs market persists. He noted that the labor market is extraordinarily strong and if the job situation remains very hot, “it may well be the case that we have to do more,” he said. Stocks and Treasuries initially rallied as Powell spoke, after he stopped short of taking a more hawkish stance on interest rates in the wake of the robust jobs data. However, stocks later fell and yields rose as investors absorbed Powell’s remark that rates could peak higher. After a series of large interest-rate increases last year, Powell and his colleagues are slowing the pace, while noting that they are still pushing higher. Powell has argued that easing pressure in the labor market is part of the answer to cooling off inflation in core services, excluding housing, a measure he has highlighted. U.S. central bankers were caught off guard by a rapid rise in prices in the final quarter of 2021. Inflation, by their preferred measure rose 5% in the 12 months through December, far above their 2% target.
Today: December 9, 2023